PricewaterhouseCoopers (PwC) has echoed concerns raised by Xafinity Consulting with research showing that pension liabilities disclosed in accounts have increased by around 25 per cent over the last six months due to falling bond yields, despite asset increases of nearly 20 per cent.

Shareholders could be shocked by the growing pension liabilities that are evident in UK plc's company accounts at year-end, said PwC, as the impact of falling bond yields hits. High yields on AA corporate bonds, which are used to calculate pension liabilities on an accounting basis, resulted in improved pension scheme funding positions, but the last six months have seen bond yields fall as the economy begins to level out.

PwC predicts that, on an IFRS accounting basis, the total UK pension liabilities for the FTSE 100 will have gone from zero deficit at the end of 2008, to around £75bn by September 2009.

On a scheme funding basis, FTSE 100 pension deficits are currently at around £100bn, despite improvements in the equity market over the last six months.

"Many companies may be expecting that their pension deficits would have reduced in the last few months due to favourable investment performance," commented Brian Peters, partner at PwC LLP. "Some will be shocked to find their accounting deficits have increased because liabilities have increased faster than assets as a result of falling bond yields.

"As the investor community makes its decisions based on the accounting numbers, we could see their shock reflected in share prices as these figures grow as a result of falling bond yields. Companies need to anticipate this and consider the extent to which their investors will have factored these issues into their valuation."

Peters added that pension figures seen in 2010's accounts could be a more realistic reflection of UK plc's pension problem, "allowing investors and businesses to make better informed decisions and comparisons between companies".

Share Story: